- Itemized deductions are an alternative to the standard deduction provided by the IRS for income tax returns.
- Itemizing deductions can sometimes lower your adjusted gross income more than the standard deduction, which can result in a lower tax liability.
- Not all people can file for a standard deduction, making it mandatory for them to itemize.
Tax season makes many people wonder what itemized deductions are and what role they play in tax preparation. Itemized deductions provide an alternative to going with the standard deductions and can potentially reduce your taxable income. Some standard deductions may not account for unique tax or income situations, but itemized deductions can and may alter your tax responsibility.
Once you understand how itemized deductions work, as well as see a few itemized deductions examples, you can determine if they might be useful for your income tax filing or if a standard deduction might be the better option.
How do itemized deductions work?
To itemize something is to present it in separate, distinct pieces on a list rather than present them as a whole unit. Therefore, itemized tax deductions on your federal income tax return are a log of specific expenses and deductions you’re interested in claiming. This is different from taking a lump-sum deduction, known as the standard deduction, which serves as a simpler way of claiming tax deductions, since you don't have to provide a list of all detailed deductions.
Taxpayers who want to itemize their deductions must file a Schedule A tax form alongside their Form 1040. Both of these forms can be found on the IRS website. Be prepared to provide a list, while saving records or documents, of qualifying expenses if you plan to itemize deductions, including mortgage interest and property taxes, among others.
Itemized deductions examples
There are several common itemized deductions examples to pick from. Bear in mind that these are subject to change every tax year, as are other elements of tax law. Here are current examples of itemized deduction-eligible expenses:
- Unreimbursed medical expenses (including dental expenses)
- State and local income taxes
- Property taxes
- Home mortgage interest
- Charitable contributions
- Gambling losses
- Casualty or theft losses
These are just a handful of common expenses that you can include as itemized deductions. There may be others that apply to your individual financial situation.
When does it make sense to itemize deductions?
People who itemize deductions typically do so because it results in a lower tax liability, compared to what they would receive with the standard deduction. Itemizing might make sense when your total itemized deductions are higher than the standard deduction amount. This could be if you have one-off events, such as losses due to theft or unusually high medical expenses.
Certain taxpayers may not be able to use the standard deduction. For example, if you’re a married individual filing separately from your spouse and your spouse is itemizing deductions, you'll have to itemize, as well. People who are nonresident aliens or were dual-status aliens during the tax year in question may also have to itemize deductions. If you’re unsure whether you're obligated to itemize, consider reaching out to a financial or tax professional.
Standard deduction vs. itemized deductions
Itemizing deductions is an alternative to taking the standard deduction when filing tax returns. This may be a better move if it will result in a lower level of taxable income than you’d realize through the standard deduction.
- Standard deduction: A specific amount of money that reduces taxable income for that tax year. The standard deduction is often easier to account for than itemized deductions, which require more record-keeping.
- Itemized deductions: A list of expenses and losses accrued within a year that can count against your taxable income. Itemizing deductions can sometimes lower your adjusted gross income more than the standard deduction.
The standard deduction varies based on your filing status. Married couples filing jointly have a higher standard deduction than those who file as single or head of household. You also can't take the standard deduction and itemize deductions at the same time — you have to choose one option when filing.
The standard deduction number may change yearly. For example, the 2021 tax year’s standard deduction was lower than it is for 2022:
- 2022 Tax Year: $12,950 (single or married filing separately); $19,400 (head of household); $25,900 (married)
- 2021 Tax Year: $12,550 (single or married filing separately); $18,800 (head of household); $25,100 (married)
Speak with a tax professional to choose what’s right for you
If you’re unsure whether or not itemized deductions are right for you, contact a tax-preparation professional. They can help you figure out if you’d be better off with itemized deductions or the standard deduction based on your finances and other relevant circumstances. Knowing which way to handle deductions can help you put yourself in the strongest position possible before filing taxes, while also potentially lowering your taxable income.